Is It Time to Consider Getting a Business Loan?

There may come a point when your small business plateaus. Expanding operations is difficult without cash, and there won’t be new cash until operations are expanded. Financing that move is the next step. A business loan might fit your needs.

A business loan, like any loan, is an agreement to transfer property (usually cash) from the lender to the borrower. The money is paid back with interest over a certain period of time. The tricky part is getting qualified for a business loan. Financial institutions have strict lending criteria, especially in the current credit market. However, even if you’re not the perfect candidate, the Small Business Administration (SBA) may be able to help. The SBA is a government organization that exists to aid small businesses in order to maintain and strengthen the economy. One way they do this is by guaranteeing loans. This means businesses that might not ordinarily qualify have a shot at getting the funds they need. Find out more at sba.gov/loans-grants.

Preparation is Key

To convince a lender to loan your business money, you’ll need to prepare a loan proposal. The loan proposal will need to satisfy these common and essential lender questions.

Are you financially responsible? Personal and business credit history will be closely critiqued.

What is the money intended for and how much do you need? Describe how it will meet the business’ needs or increase profits.

How and when will you repay it? Describe expected cash flow and the repayment timetable.

What collateral can you offer? Collateral is property or assets used to secure the loan.

You’ll want to meet with the loan officer in person and openly discuss your business and its needs. Establishing a relationship with the financial institution might be the thing that pushes the decision in your favor.

Handling Rejection

There are plenty of factors that can lead to loan rejection: A negative event on your credit report, a risky debt-to-equity ratio, or doubt in long-term business sustainability. If you are denied and plan to re-apply, always ask the loan officer how to improve the application. Reworking the business plan or loan proposal can increase the chance of receiving a loan.

Loans can help you grow, but they are not for every business. As with any other type of credit, consider the options carefully before jumping in.

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